Measuring the Implications of Sales and Consumer Inventory Behavior
Temporary price reductions (sales) are common for many goods and naturally result in large increases in the quantity sold. Demand estimation based on temporary price reductions may mismeasure the long-run responsiveness to prices. In this paper we quantify the extent of the problem and assess its ec...
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| Veröffentlicht in: | Econometrica 2006-11, Vol.74 (6), p.1637-1673 |
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| container_title | Econometrica |
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| creator | Hendel, Igal Nevo, Aviv |
| description | Temporary price reductions (sales) are common for many goods and naturally result in large increases in the quantity sold. Demand estimation based on temporary price reductions may mismeasure the long-run responsiveness to prices. In this paper we quantify the extent of the problem and assess its economic implications. We structurally estimate a dynamic model of consumer choice using two years of scanner data on the purchasing behavior of a panel of households. The results suggest that static demand estimates, which neglect dynamics, (i) overestimate own-price elasticities by 30 percent, (ii) underestimate cross-price elasticities by up to a factor of 5, and (iii) overestimate the substitution to the no-purchase or outside option by over 200 percent. This suggests that policy analysis based on static elasticity estimates will underestimate price-cost margins and underpredict the effects of mergers. |
| doi_str_mv | 10.1111/j.1468-0262.2006.00721.x |
| format | Article |
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Demand estimation based on temporary price reductions may mismeasure the long-run responsiveness to prices. In this paper we quantify the extent of the problem and assess its economic implications. We structurally estimate a dynamic model of consumer choice using two years of scanner data on the purchasing behavior of a panel of households. The results suggest that static demand estimates, which neglect dynamics, (i) overestimate own-price elasticities by 30 percent, (ii) underestimate cross-price elasticities by up to a factor of 5, and (iii) overestimate the substitution to the no-purchase or outside option by over 200 percent. This suggests that policy analysis based on static elasticity estimates will underestimate price-cost margins and underpredict the effects of mergers.</description><identifier>ISSN: 0012-9682</identifier><identifier>EISSN: 1468-0262</identifier><identifier>DOI: 10.1111/j.1468-0262.2006.00721.x</identifier><identifier>CODEN: ECMTA7</identifier><language>eng</language><publisher>Oxford, UK and Boston, USA: Blackwell Publishing Ltd</publisher><subject>Applications ; Applied sciences ; Brands ; Consumer advertising ; Consumer behavior ; Consumer behaviour ; Consumer preferences ; Consumer prices ; Costs ; Decision models ; Decision theory. Utility theory ; Demand ; demand anticipation ; Detergents ; differentiated products ; discrete choice models ; Dynamic modeling ; Economic policy ; Elasticity of demand ; Estimating techniques ; Exact sciences and technology ; Households ; Insurance, economics, finance ; Inventories ; Long-run price elasticities ; Marketing ; Mathematics ; Measurement ; Operational research and scientific management ; Operational research. Management science ; Price elasticity ; Probability and statistics ; Sales ; Sales promotions ; Sciences and techniques of general use ; Static modeling ; Statistics ; stockpiling ; storable goods ; Studies</subject><ispartof>Econometrica, 2006-11, Vol.74 (6), p.1637-1673</ispartof><rights>Copyright 2006 The Econometric Society</rights><rights>2007 INIST-CNRS</rights><rights>Copyright Blackwell Publishing Nov 2006</rights><lds50>peer_reviewed</lds50><oa>free_for_read</oa><woscitedreferencessubscribed>false</woscitedreferencessubscribed><citedby>FETCH-LOGICAL-c6381-a7dcb146c3802c799727c5870447e144c14a740056d0cd74bd35c942e822c20e3</citedby><cites>FETCH-LOGICAL-c6381-a7dcb146c3802c799727c5870447e144c14a740056d0cd74bd35c942e822c20e3</cites></display><links><openurl>$$Topenurl_article</openurl><openurlfulltext>$$Topenurlfull_article</openurlfulltext><thumbnail>$$Tsyndetics_thumb_exl</thumbnail><linktopdf>$$Uhttps://www.jstor.org/stable/pdf/4123086$$EPDF$$P50$$Gjstor$$H</linktopdf><linktohtml>$$Uhttps://www.jstor.org/stable/4123086$$EHTML$$P50$$Gjstor$$H</linktohtml><link.rule.ids>314,776,780,799,828,1411,27903,27904,45553,45554,57995,57999,58228,58232</link.rule.ids><backlink>$$Uhttp://pascal-francis.inist.fr/vibad/index.php?action=getRecordDetail&idt=18282773$$DView record in Pascal Francis$$Hfree_for_read</backlink></links><search><creatorcontrib>Hendel, Igal</creatorcontrib><creatorcontrib>Nevo, Aviv</creatorcontrib><title>Measuring the Implications of Sales and Consumer Inventory Behavior</title><title>Econometrica</title><description>Temporary price reductions (sales) are common for many goods and naturally result in large increases in the quantity sold. Demand estimation based on temporary price reductions may mismeasure the long-run responsiveness to prices. In this paper we quantify the extent of the problem and assess its economic implications. We structurally estimate a dynamic model of consumer choice using two years of scanner data on the purchasing behavior of a panel of households. The results suggest that static demand estimates, which neglect dynamics, (i) overestimate own-price elasticities by 30 percent, (ii) underestimate cross-price elasticities by up to a factor of 5, and (iii) overestimate the substitution to the no-purchase or outside option by over 200 percent. This suggests that policy analysis based on static elasticity estimates will underestimate price-cost margins and underpredict the effects of mergers.</description><subject>Applications</subject><subject>Applied sciences</subject><subject>Brands</subject><subject>Consumer advertising</subject><subject>Consumer behavior</subject><subject>Consumer behaviour</subject><subject>Consumer preferences</subject><subject>Consumer prices</subject><subject>Costs</subject><subject>Decision models</subject><subject>Decision theory. Utility theory</subject><subject>Demand</subject><subject>demand anticipation</subject><subject>Detergents</subject><subject>differentiated products</subject><subject>discrete choice models</subject><subject>Dynamic modeling</subject><subject>Economic policy</subject><subject>Elasticity of demand</subject><subject>Estimating techniques</subject><subject>Exact sciences and technology</subject><subject>Households</subject><subject>Insurance, economics, finance</subject><subject>Inventories</subject><subject>Long-run price elasticities</subject><subject>Marketing</subject><subject>Mathematics</subject><subject>Measurement</subject><subject>Operational research and scientific management</subject><subject>Operational research. Management science</subject><subject>Price elasticity</subject><subject>Probability and statistics</subject><subject>Sales</subject><subject>Sales promotions</subject><subject>Sciences and techniques of general use</subject><subject>Static modeling</subject><subject>Statistics</subject><subject>stockpiling</subject><subject>storable goods</subject><subject>Studies</subject><issn>0012-9682</issn><issn>1468-0262</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>2006</creationdate><recordtype>article</recordtype><recordid>eNqNkE1v0zAYxy3EJMrgG3CwJsEt2eOX2M6Bw4jGqDQ2TRTYzfIclzmkSWcnW_vt5y5TkXbCsmTL_xc_-iGECeQkreMmJ1yoDKigOQUQOYCkJN-8QrO98BrNAAjNSqHoG_Q2xgYAirRnqPruTByD7_7g4dbh-WrdemsG33cR90v8w7QuYtPVuEov48oFPO_uXTf0YYu_uFtz7_vwDh0sTRvd--fzEP38erqovmXnl2fz6uQ8s4IpkhlZ25s0k2UKqJVlKam0hZLAuXSEc0u4kTxNJWqwteQ3NStsyalTlFoKjh2iT1PvOvR3o4uDXvloXduazvVj1EwUjBNWJOPRC2PTj6FLs2kKTJVcSZZMajLZ0McY3FKvg1-ZsNUE9A6tbvSOoN4R1Du0-gmt3qTox-d-E61pl8F01sd_eUUVlU9ffJ58D7512__u16fV4iTdUv7DlG9iAr7Pc0IZKJHkbJJ9HNxmL5vwVwvJZKF_X5zpBRFEXv0q9DV7BOA2ojI</recordid><startdate>200611</startdate><enddate>200611</enddate><creator>Hendel, Igal</creator><creator>Nevo, Aviv</creator><general>Blackwell Publishing Ltd</general><general>Econometric Society</general><general>Blackwell</general><scope>BSCLL</scope><scope>IQODW</scope><scope>AAYXX</scope><scope>CITATION</scope><scope>8BJ</scope><scope>FQK</scope><scope>JBE</scope></search><sort><creationdate>200611</creationdate><title>Measuring the Implications of Sales and Consumer Inventory Behavior</title><author>Hendel, Igal ; Nevo, Aviv</author></sort><facets><frbrtype>5</frbrtype><frbrgroupid>cdi_FETCH-LOGICAL-c6381-a7dcb146c3802c799727c5870447e144c14a740056d0cd74bd35c942e822c20e3</frbrgroupid><rsrctype>articles</rsrctype><prefilter>articles</prefilter><language>eng</language><creationdate>2006</creationdate><topic>Applications</topic><topic>Applied sciences</topic><topic>Brands</topic><topic>Consumer advertising</topic><topic>Consumer behavior</topic><topic>Consumer behaviour</topic><topic>Consumer preferences</topic><topic>Consumer prices</topic><topic>Costs</topic><topic>Decision models</topic><topic>Decision theory. Utility theory</topic><topic>Demand</topic><topic>demand anticipation</topic><topic>Detergents</topic><topic>differentiated products</topic><topic>discrete choice models</topic><topic>Dynamic modeling</topic><topic>Economic policy</topic><topic>Elasticity of demand</topic><topic>Estimating techniques</topic><topic>Exact sciences and technology</topic><topic>Households</topic><topic>Insurance, economics, finance</topic><topic>Inventories</topic><topic>Long-run price elasticities</topic><topic>Marketing</topic><topic>Mathematics</topic><topic>Measurement</topic><topic>Operational research and scientific management</topic><topic>Operational research. Management science</topic><topic>Price elasticity</topic><topic>Probability and statistics</topic><topic>Sales</topic><topic>Sales promotions</topic><topic>Sciences and techniques of general use</topic><topic>Static modeling</topic><topic>Statistics</topic><topic>stockpiling</topic><topic>storable goods</topic><topic>Studies</topic><toplevel>peer_reviewed</toplevel><toplevel>online_resources</toplevel><creatorcontrib>Hendel, Igal</creatorcontrib><creatorcontrib>Nevo, Aviv</creatorcontrib><collection>Istex</collection><collection>Pascal-Francis</collection><collection>CrossRef</collection><collection>International Bibliography of the Social Sciences (IBSS)</collection><collection>International Bibliography of the Social Sciences</collection><collection>International Bibliography of the Social Sciences</collection><jtitle>Econometrica</jtitle></facets><delivery><delcategory>Remote Search Resource</delcategory><fulltext>fulltext</fulltext></delivery><addata><au>Hendel, Igal</au><au>Nevo, Aviv</au><format>journal</format><genre>article</genre><ristype>JOUR</ristype><atitle>Measuring the Implications of Sales and Consumer Inventory Behavior</atitle><jtitle>Econometrica</jtitle><date>2006-11</date><risdate>2006</risdate><volume>74</volume><issue>6</issue><spage>1637</spage><epage>1673</epage><pages>1637-1673</pages><issn>0012-9682</issn><eissn>1468-0262</eissn><coden>ECMTA7</coden><abstract>Temporary price reductions (sales) are common for many goods and naturally result in large increases in the quantity sold. 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| source | Wiley Online Library Journals Frontfile Complete; JSTOR Mathematics & Statistics; Jstor Complete Legacy |
| subjects | Applications Applied sciences Brands Consumer advertising Consumer behavior Consumer behaviour Consumer preferences Consumer prices Costs Decision models Decision theory. Utility theory Demand demand anticipation Detergents differentiated products discrete choice models Dynamic modeling Economic policy Elasticity of demand Estimating techniques Exact sciences and technology Households Insurance, economics, finance Inventories Long-run price elasticities Marketing Mathematics Measurement Operational research and scientific management Operational research. Management science Price elasticity Probability and statistics Sales Sales promotions Sciences and techniques of general use Static modeling Statistics stockpiling storable goods Studies |
| title | Measuring the Implications of Sales and Consumer Inventory Behavior |
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